Dubai or not to buy? A Brief Assessment of the Dubai Real Estate Market

There has never been such an ambitious and creative drive to establish a real estate market as has been seen in Dubai over the last three years. Running out of oil reserves, the Crown Prince of Dubai, Sheikh Mohammed Al Marktoum, set out to make Dubai the financial, commercial and tourist capital of the Middle East and in the space of three years he has more than succeeded. The country’s GDP has expanded by 17 percent over the past year and HSBC Bank estimates there are $42.5 billion worth of projects under construction, compared to $20 billion for the rest of the neighboring oil states combined. .

The result has been Dubai’s rise as the world’s most glamorous property investment market. Nothing in Dubai is understated. The tiny emirate, which just five years ago was nothing more than a simple fishing village, has suddenly become the Manhattan of the Middle East. Following the mantra “bigger is better”, Dubai has proudly announced the world’s first seven-star hotel, Burj Al Arab, and is set to build the world’s largest shopping mall, the first underwater hotel, and surprisingly, the longest indoor ski slope.

Annual visitor numbers are already at 5 million and are expected to rise to 10 million by 2007. The scale of development is unprecedented, with apartment blocks being built by the dozens and being sold in a matter of days to hordes of eager investors willing to queue overnight. to get a bargain in Dubai. The projects launching are some of the most inventive and ambitious the world has seen, with man-made islands like The Palm and, more recently, The World, capitalizing on the attractions of beachfront living and redefining geography. of the world in the process.

With real estate as off the beaten path as this, it’s not hard to see why the Dubai property market is attracting international interest on a massive scale. There really is nothing like it and it seems like everyone who is anybody will have a piece of Dubai. Dubai’s most exclusive developments are being taken over by the celebrity classes and global elite. Aging English rocker Rod Stewart is already the proud owner of Great Britain. [The World’s miniature Britain that is!] and sports stars, movie stars and anyone with more than €1.5 million to spend on a private beachfront retreat are snapping up villas throughout the Palm.

If so much has been achieved in three years, where will Dubai go from here? Nakheel, the company behind the extraordinary projects Palm and The World, already has its eye on, quite literally, a new development. Dream City, like Palm, is also a series of man-made islands, but significantly exceeds the size of Palm. When completed, Dream City will be in the shape of an eye, with the residential element in giant tabs extending out into the Persian Gulf. Villas at Dream City start at EUR425,000 for around 371 square meters (4,000 square feet) of accommodation. Townhouses start at EUR200,000, while one and two-bedroom apartments start at EUR150,000.

For the real estate investor looking for a lucrative return, a new market is always risky and the fear is that the market could crash soon after it has gotten off the ground. With plenty of anecdotal evidence suggesting Dubai property prices are rising by as much as 60% in a year, it’s tempting to rush in and grab a piece of the action. But astute investors will have to consider whether it’s too fast.

The pace of the real estate market in Dubai makes speculators dream. It is not uncommon for properties to have been transferred up to a dozen times, even before the building is complete. Many opportunistic investors are reserving 10-20 villas in new developments, selling them at significant profits before completion.

Taking advantage of this and perhaps in an effort to cool the market, builders are charging a fee of up to 7% each time a property is transferred and lending institutions are trying to maintain some control in the market by agreeing to finance only the original sale. . price. On the secondary market, prices can exceed the original price by 10-70%, depending on the popularity of the development.

All signs suggest that the initial hype is subsiding and prices are settling. A year and a half ago 900 houses in a development were sold in 7 hours. Many believe that demand will continue to be sustained and prices will continue to rise, although not at the frenzied pace that they have been rising for the past two years.

Compared to other new and emerging markets, such as Central and Eastern Europe, Dubai appears to be a more attractive investment. Prices in the mid-market are comparable to Eastern European cities like Tallinn and Krakow. Unlike these countries, Dubai has the sun factor and a glamorous edge, which surely contributes to the high immigration from Europe, the Gulf region and the Indian subcontinent. More than 100,000 additional people are expected to arrive in Dubai each year. This large scale immigration is sure to support the rental property markets.

Other real estate markets are seeing rental yields fall. Too many investors buying properties and not enough tenants to rent them! Ireland, Great Britain and many of the new European capitals are seeing yields fall below 3%. In Dubai, rental yields have fallen from a healthy 8-9% but are now holding steady at 6-7%. The fact that rents in Dubai are paid in advance, sometimes up to a year in advance, is certainly a motivating factor for those considering buying a rental property in Dubai. On the downside, service charges on new developments can be high, anywhere up to £4000 per year, and can be requested upfront by the developer!

Despite the current boom and huge immigration to Dubai, cautious investors raise understandable questions about the safety of property in the United Arab Emirates. So far, no law has been passed confirming the property right of foreigners in any of the projects launched to date. However, the UAE allows individual emirates to issue their own legislation to regulate ownership of real estate. While Dubai is committed to encouraging foreign investment, it rules by decree and decisions can be changed overnight at the whim of the current ruler. The government has promised that freehold will be granted in the near future. When this happens, investor confidence in the Dubai real estate market is likely to increase further.

If the real estate market in Dubai is to develop with any degree of stability, capturing the interest of second home owners and expats looking to relocate is essential. If the market continues to be driven by speculators, the possibility of a speculative bubble is not unlikely. A review of property ownership laws for foreign investors should foster a more stable real estate investment climate, helping to avoid any collapse that may be caused by a rapidly dwindling investor base of opportunistic speculators.